Report to the Ranking Minority 

Member, Subcommittee on Military 

Readiness, Committee on Armed 

Services, House of Representatives 

United States General Accounting Office 

GAO 

July 2003 DEFENSE 

MANAGEMENT 

DOD Faces 

Challenges 

Implementing Its 

Core Competency 

Approach and A-76 

Competitions 

GAO-03-818 
Progress in assessing core functions has been varied and limited across 

major Defense components, affected somewhat by ambiguous definitions 

of the term “core function.” In some instances additional guidance was 

obtained, but definitions of core remain somewhat broad and subjective, 

and will likely remain so in the future. Army and Air Force have led within 

DOD in assessing core functions, but the Army has done the most, and 

found, contrary to its expectations, that distinguishing between core and 

non-core functions does not, by itself, prescribe a sourcing decision. Other 

factors must also be considered such as risk and operational considerations. 

The range of alternatives to A-76 likely to be pursued under the core 

competency-based approach is not yet clear, but DOD has made some 

progress toward identifying and/or using some alternatives through pilot 

projects and other efforts by the services as they have focused on the core 

initiative. However, the use of alternatives could be limited without 

special legislative authorities and/or repeal of various existing prohibitions, 

and some could be tempered by the department’s efforts to meet the A-76 

competitive sourcing goals set by OMB. 

DOD reported that as of June 1, 2003, it has met OMB’s short-term goal to 

use the A-76 process to study 15 percent of the positions identified in DOD’s 

commercial activities inventory by the end of fiscal year 2003. However, 

meeting the longer-term goal to study at least 50 percent (226,000) of its 

nearly 453,000 commercial activity positions through fiscal year 2008 will 

present a challenge. This is nearly double the number of positions that DOD 

has previously studied during a comparable time period, and providing 

sufficient resources (financial and technical) to complete the studies may 

prove challenging. Also, the defense components, particularly the Air Force, 

plan to transfer certain military personnel into warfighting functions and 

replace them with government civilian and/or contractor personnel. This will 

require the components to reprioritize their funding for operation and 

maintenance accounts, because it is from those accounts the services must 

fund replacement civilian or contractor personnel. 

DOD’s A-76 Positions Completed and OMB’s Goal, Fiscal Years 1997-2008 

The Department of Defense (DOD) 

is pursuing a new initiative 

involving a core competency 

approach for making sourcing 

decisions—that is, sourcing 

decisions based on whether the 

function is core to the agency’s 

warfighting mission. In determining 

how to best perform non-core 

functions, DOD’s position is that its 

components should look beyond 

just the use of public-private 

competitions under Office of 

Management and Budget (OMB) 

Circular A-76 in making sourcing 

decisions, and consider other 

alternatives such as partnering 

or employee stock ownership. 

GAO was asked to assess (1) the 

department’s progress in assessing 

its core functions as a basis for 

sourcing decisions, (2) the plans 

and progress DOD has made 

in identifying and implementing 

alternatives to A-76, and (3) the 

current status of DOD’s A-76 

program. 

GAO is recommending that DOD 

clarify its expectations for 

sourcing decisions based on core 

competency assessment results 

and provide guidance on additional 

factors that should be considered 

in reaching a sourcing decision; 

and ensure that conversion of 

functions from performance by 

military to government civilian or 

contractor personnel have clearly 

identified sources of funding to 

support those decisions. The 

department generally concurred 

with the recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-03-818.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barry W. 

Holman at (202) 512-8412 or 

holmanb@gao.gov. 

Highlights of GAO-03-818, a report 

to the Ranking Minority Member, 

Subcommittee on Military Readiness, 

Committee on Armed Services, 

House of Representatives 

July 2003 

DEFENSE MANAGEMENT 

DOD Faces Challenges Implementing 

Its Core Competency Approach and 

A-76 Competitions 
Page i GAO-03-818 Defense Management 

Letter 1

Results in Brief 2

Background 5

Progress in Assessing Core Functions Has Varied Across the 

Defense Components and Has Been Affected Somewhat by 

Definitions of “Core” 9

Some Progress Made in Identifying Alternative Sourcing 

Arrangements, but the Extent to Which Alternatives Are Likely 

to Be Used Is Unclear 18

DOD Expected to Maintain an Active A-76 Competitive 

Sourcing Program 23

Conclusions 29

Recommendations 29

Agency Comments and Our Evaluation 30

Scope and Methodology 30

Appendix I Alternatives to A-76 for Sourcing 

Non-Core Competencies 33 

Appendix II Army’s Plans for Transforming Its In-House 

Industrial Facilities 37 

Appendix III Senior Executive Council Definitions of Core 

Competency 38 

Appendix IV Pioneer Projects 39 

Appendix V Comments from the Department of Defense 42 

Appendix VI GAO Contact and Staff Acknowledgments 44 

Contents 
Page ii GAO-03-818 Defense Management 

Related GAO Products 45 

Tables 

Table 1: Pioneer Projects Submitted to OMB 19

Table 2: DOD Positions Announced for Study under A-76, 

by Component, Fiscal Years 1997-2002 24

Table 3: Number of Positions for Which A-76 Studies Have Been 

Completed, by Component, Fiscal Years 1997-2002 25

Table 4: Number of Positions for Which A-76 Studies Are Ongoing, 

by Component and Year When Study Was Announced, 

Fiscal Years 1999-2003 25

Figure 

Figure 1: DOD’s A-76 Positions Completed and OMB’s Goal, 

Fiscal Years 1997-2008 24
Page iii GAO-03-818 Defense Management 

Abbreviations 

AMC U.S. Army Materiel Command 

CAMIS Commercial Activities Management Information System 

CINC commander-in-chief 

DFAS Defense Finance and Accounting Service 

DLA Defense Logistics Agency 

DOD Department of Defense 

ESOP Employee Stock Ownership Plans 

FAIR Federal Activities Inventory Reform Act 

NSA National Security Agency 

OMB Office of Management and Budget 

TBC Transitional Benefit Corporations 

This is a work of the U.S. Government and is not subject to copyright protection in the 

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permission from GAO. It may contain copyrighted graphics, images or other materials. 

Permission from the copyright holder may be necessary should you wish to reproduce 

copyrighted materials separately from GAO’s product. 
Page 1 GAO-03-818 Defense Management 

July 15, 2003 

The Honorable Solomon P. Ortiz 

Ranking Minority Member 

Subcommittee on Military Readiness 

Committee on Armed Services 

House of Representatives 

Dear Mr. Ortiz: 

The Department of Defense (DOD) is currently examining a core 

competency-based approach for making sourcing decisions—that is, the 

decision to use a public or private sector source to perform a necessary 

agency function or activity based on whether the function or activity is 

core to the agency’s mission.1

 This is one of the business transformation 

initiatives that have been endorsed by one of DOD’s high-level 

management committees, the Senior Executive Council.2

 It believes that 

the department should focus its energies and talents on those functions 

that are core or directly linked to its warfighting mission, and which must 

be performed by the agency, with the expectation that necessary products 

or services associated with non-core functions should be obtained from 

other government agencies or the private sector. 

In determining how to best perform non-core functions, DOD’s 

position is that its components should look beyond just the use of 

Office of Management and Budget (OMB) Circular A-76, with its focus 

on public-private competitions, in making sourcing decisions. It has 

expressed interest in examining the use of other alternatives, such 

as public-private partnering, transferring functions to other agencies, 

employee stock ownerships, and quasi-government corporations. 

Nevertheless, Circular A-76 remains an important tool for making 

sourcing decisions for non-inherently governmental functions typically 

 1

 Throughout this report, we use the terms “activities” and “functions” interchangeably. 

2

 The Senior Executive Council is a high-level management committee established in 2001 

to (1) help guide efforts across the department to transform and improve the department’s 

business practices, and (2) to function as a board of directors for DOD. The Council is 

chaired by the Secretary of Defense and is comprised of the Deputy Secretary of Defense, 

the service secretaries, and the Under Secretary of Defense for Acquisition, Technology 

and Logistics. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-818 Defense Management 

involving commercially available services. Also, A-76 competitive sourcing 

is a major initiative under the President’s Management Agenda3

 and OMB 

has set ambitious goals for those competitions. 

At your request, we examined DOD’s plans for sourcing non-core 

functions and the effect this may have on its A-76 program. Accordingly, 

we assessed (1) the department’s progress in assessing its core functions 

as a basis for sourcing decisions, (2) the plans and progress DOD has 

made in identifying and implementing alternatives to A-76, and (3) the 

current status of DOD’s A-76 program. 

In performing work for this review, we obtained and analyzed plans 

available from DOD and its components for assessing non-core functions 

and identifying alternate sourcing approaches, and reviewed relevant 

documents from DOD agencies. We met with officials from the Office of 

the Secretary of Defense, the Army, the Navy, the Air Force, the Marine 

Corps, the Defense Logistics Agency, and other organizations to obtain 

information on their sourcing programs and efforts to identify alternative 

sourcing options. The A-76 data used in this report are derived from a 

Web-based DOD commercial activities database; we did not validate 

the information in this database. Further details on our scope and 

methodology are included at the end of this report. 

Progress in assessing core functions has been varied and limited across 

major Defense components4

 and has been challenging. Multiple and 

somewhat ambiguous definitions of what constitutes a core function 

have made it difficult for the components to easily employ the core 

competency-based approach to decision making. As a result, some 

components have sought additional guidance and/or applied their 

own criteria to identify core functions. Even then, much guidance 

 3

 Executive Office of the President, Office of Management and Budget, The 

President’s Management Agenda, Fiscal Year 2002. The report can be found at 

www.whitehouse.gov/omb/budget. The President’s Management Agenda, announced 

in the summer of 2001, is a strategy for improving the management of the federal 

government. It focuses on five areas of management weakness across the government 

where improvements and the most progress can be made. In addition to competitive 

sourcing, the President’s Management Agenda includes an emphasis on strategic 

management of human capital, improved financial performance, expanded electronic 

government, and budget and performance integration. 

4

 Defense components refer to the military services and Defense agencies. 

Results in Brief 
Page 3 GAO-03-818 Defense Management 

remained somewhat broad in nature and subjective, and will likely remain 

so in the future. The Army has made the most progress to identify core and 

non-core functions, having completed core competency determinations 

for over 200,000 positions, but has had to deal with numerous appeals to 

its initial core determinations. The Air Force has recently completed a 

more limited effort, focusing predominately on military positions. As a 

result of its core competency-based effort, the Air Force identified over 

17,000 military positions and almost 9,000 civilian positions it believes 

are non-core. The Navy and Marine Corps are in the early stages of 

determining their core functions. The Defense Logistics Agency broadly 

identified its core and non-core competencies, but has not identified 

specific positions as core or non-core. Meanwhile, through its efforts to 

operationalize the core competency-based approach, the Army discovered 

that the utility of identifying core functions for the purpose of making 

sourcing decisions can have its limitations. More specifically, contrary to 

its original expectations, the Army found that distinguishing between core 

and non-core functions may not, by itself, prescribe a sourcing decision. 

Once it has been determined that a function is not core to an agency’s 

mission, other factors that are not currently covered in DOD’s guidance 

must also be considered, such as risk and operational considerations. As 

a result, this creates some uncertainty regarding how and to what extent 

the Army will use the results of the core analyses and potentially has 

implications for other Defense components as well. 

The magnitude of alternate sourcing arrangements that DOD will pursue 

under the core competency-based approach is not yet clear, based on 

limitations in core assessments conducted to date and due to legal and 

other constraints that could impact use of alternate arrangements. Even 

so, DOD has made some progress toward identifying and using some 

sourcing arrangements that are alternatives to A-76, including some 

identified as part of an initiative to identify alternatives through use of 

pilot projects,5

 and a few others that have been identified by the services 

as they have focused on the core initiative. For example, in an effort 

to stimulate consideration of alternatives, DOD tasked each of its 

components with identifying at least one non-core competency pilot 

project and developing plans to transition the affected functions out of 

DOD using alternatives to A-76 competition. Six pilot projects have been 

approved and are in varying stages of implementation. They range from 

divestiture to partnering with municipalities for services, with the latter 

 5

 Officially referred to as pioneer projects. 
Page 4 GAO-03-818 Defense Management 

expected to be used as a model for more widespread implementation. 

Beyond those six pilot projects, department officials told us about 

two additional projects under way that would transfer certain functions 

to other agencies. At the same time, various officials told us that 

legislative restrictions—such as those that restrict outsourcing—and 

OMB’s emphasis on competitive sourcing under A-76 could impact the 

extent to which alternatives are used. 

While the department continues to examine the potential for implementing 

its core concept and alternative sourcing plans, it is also actively 

maintaining an A-76 competitive sourcing program. This is largely due 

to the emphasis on competitive sourcing in the President’s Management 

Agenda and the A-76 goals set by OMB. Building on its ongoing A-76 

program, DOD reported that as of June 1, 2003, it has met OMB’s 

short-term goal to study 15 percent of the positions that the department 

identified in its year 2000 commercial activities inventory by the end of 

fiscal year 2003. Meeting the longer-term goal of studying at least 

50 percent of its nearly 453,000 commercial activity positions6

 through 

fiscal year 2008 could present a challenge because the goal requires 

studying far more positions—nearly double—than DOD has previously 

studied under a comparable time period. If the history of DOD’s A-76 

program is a guide, the department could face other challenges associated 

with studying such sizeable numbers of positions. These challenges 

include providing sufficient time and resources to complete the studies, 

and encountering difficulties in identifying and grouping positions for 

study. Another challenge to completing OMB’s A-76 goals involves the 

defense components’ plans, particularly the Air Force, to convert a 

sizeable number of military positions to performance by government 

civilian or contractor personnel, either as a result of the core-competency 

process or through A-76 studies. Although precise numbers are not 

available for each of the components, the services have indicated they 

plan to use such conversions to transfer the affected military personnel 

and their slots to fill other priorities, rather than reduce authorized 

military end-strength. To do so will require the services to reprioritize their 

funding for operation and maintenance accounts, because it is from those 

 6

 This goal is based on DOD’s inventory of commercial activities reported in 2000; the 

numbers vary by year. 
Page 5 GAO-03-818 Defense Management 

accounts the services must fund replacement civilian or contractor 

personnel.7

This report contains recommendations for additional guidance in making 

sourcing decisions based on core assessments and to ensure conversion 

of functions from performance by military to civilian or contractor 

personnel are accompanied by identified sources of funding to support 

those decisions. In commenting on a draft of this report, the department 

generally concurred with our recommendations. 

Since 1955, the executive branch has encouraged federal agencies to 

obtain commercially available goods and services from the private sector 

when the agencies determined that such action was cost-effective. OMB 

formalized the policy in its Circular A-76, issued in 1966. In 1979, OMB 

supplemented the circular with a handbook that included procedures 

for competitively determining whether commercial activities should be 

performed in-house, by another federal agency through an Interservice 

Support Agreement, or by the private sector. OMB has updated this 

handbook three times since 1979. An extensive revision to Circular A-76

was issued on May 29, 2003, based in part on the recent work of the 

congressionally mandated Commercial Activities Panel.8

Under the newly revised circular, agencies may convert commercial 

activities to or from contractor performance through a public-private 

competition, whereby the estimated cost of public or private performance 

of the function is evaluated against published selection criteria in 

accordance with the principles and procedures outlined in the circular.9

 7

 The costs of military positions are funded through military personnel appropriation 

accounts, whereas costs associated with government civilian or contractor personnel are 

funded through operation and maintenance appropriation accounts. 

8

 The Panel, mandated by section 832 of the Defense Authorization Act for fiscal year 2001, 

required the Comptroller General to convene a panel of experts to study the process used 

by the federal government to make sourcing decisions. After a yearlong study, the Panel 

published its report in April 2002. See Commercial Activities Panel, Improving the 

Sourcing Decisions of the Government: Final Report, (Washington, D.C.: Apr. 30, 2002). 

The report can be found on GAO’s Web site at http://www.gao.gov under the Commercial 

Activities Panel heading. 

9

 The current revision to the circular replaces the use of direct conversion with a 

requirement to compete all non inherently governmental functions. In addition, the 

revised circular provides for a streamlined cost comparison for 65 or fewer civilian 

positions in addition to standard competitions. 

Background 
Page 6 GAO-03-818 Defense Management 

As part of this process, the government identifies the work to be 

performed in a “performance work statement,” prepares an in-house offer 

which includes its most efficient organization, and compares all the offers 

against each other and the selection criteria. The revised circular provides 

several alternative procedures for conducting source selections, only 

one of which allow agencies to select a contract based on other than the 

lowest cost technically acceptable offer.10 The four source selection 

alternatives are: sealed bid, lowest price technically acceptable, phased 

evaluation, and, in certain cases, trade-off (which permits agencies to 

weigh cost and non-cost factors). 

Administrative and legislative constraints from the late 1980s through 

1995 resulted in a lull—and even a moratorium—on awarding contracts 

resulting from A-76 competitions. In 1995, congressional and 

administration initiatives placed more emphasis on A-76 as a means of 

achieving greater economies and efficiencies in operations. Beginning 

about 1995, DOD began to give renewed emphasis to the use of A-76 

competitive sourcing under Circular A-76. More recently, competitive 

sourcing has received governmentwide attention, as one of five initiatives 

of the President’s Management Agenda for fiscal year 2002. DOD has been 

a leader among federal agencies in using A-76 in recent years. 

The revised circular requires agencies to prepare two annual inventories 

that categorize all activities performed by government personnel as either 

commercial or inherently governmental.11 A similar requirement was 

included in the 1998 Federal Activities Inventory Reform (FAIR) Act,12

which directs agencies to develop annual inventories of their positions 

that are not inherently governmental. DOD’s 2000 FAIR Act inventory 

identified nearly 453,000 in-house civilian positions engaged in a variety 

of commercial activities, nearly 260,000 of which have been, or are, subject 

 10 DOD has submitted a legislative proposal for inclusion in the National Defense 

Authorization Bill for Fiscal Year 2004, a request to eliminate the existing requirement 

that the department base its competitive sourcing decisions on cost. This would allow 

DOD to consider quality as well as cost when making sourcing decisions. 

11 OMB Circular A-76 defines an inherently governmental function as one that requires 

either the exercise of substantial discretion in applying government authority or the 

making of value judgments in making decisions for the government. Positions deemed 

inherently governmental are not subject to the A-76 program. 

12 Section 5 of P.L. 105-270, 31 U.S.C. 501 note (1998), on the other hand, defines an 

inherently governmental function as a “function that is so intimately related to the public 

interest as to require performance by Federal Government employees.” 
Page 7 GAO-03-818 Defense Management 

to competition or direct conversion under Circular A-76. The number 

of positions subject to A-76 is less than the total number of positions in 

commercial activities because DOD made adjustments to exclude certain 

commercial activities from being considered eligible for competition; 

they included such reasons as statutory, national security, or operational 

considerations. Under the President’s Management Agenda, OMB has 

directed agencies to directly convert or compete through cost comparison 

studies 15 percent of their total fiscal year 2000 inventories of commercial 

activities by the end of fiscal year 2003, with the ultimate goal of 

competing at least 50 percent of their inventories by the end of fiscal 

year 2008. 

In providing guidance for determining whether activities and functions, 

and associated positions are considered to be inherently governmental in 

nature, DOD has sometimes equated the term “inherently governmental” 

with the somewhat parallel term “core.”13 While use of the term “core” is 

associated with the private sector, DOD has sometimes used the term to 

designate military and civilian essential positions required for military and 

national security reasons. The old A-76 Handbook provided yet another, 

but similar, meaning for core. In the context of A-76, core capability was 

defined as “a commercial activity operated by a cadre of highly skilled 

employees, in a specialized technical or scientific development area to 

ensure that a minimum capability is maintained.” 

The concept of core in DOD has also been associated with legislative 

requirements to establish core logistics capabilities in government-owned 

military maintenance depots. This process is based on a requirement 

contained in 10 U.S.C. 2464 to identify and maintain within governmentowned and –operated facilities a core logistics capability including the 

equipment, personnel, and technical competence required to maintain 

weapon systems identified as necessary for national defense emergencies 

and contingencies. Regardless of usage, determinations of core and 

inherently governmental functions within DOD have often been viewed as 

somewhat subjective in nature. 

The term “core function” recently has gained increased and more 

expanded use within DOD, beginning with DOD’s publication of its 

September 2001 Quadrennial Defense Review Report, which 

 13 As noted in subsequent discussion, the terms are not always interchangeable. 
Page 8 GAO-03-818 Defense Management 

recommended the identification of core and non-core functions.14

According to the report, “only those functions that must be performed 

by DOD should be kept by DOD. Any function that can be provided by 

the private sector is not a core government function.” The test to separate 

core and non-core functions would be to determine whether a function is 

directly necessary for warfighting, according to the report. 

Further emphasis on assessing core functions subsequently came from 

DOD’s Senior Executive Council,15 which, in April 2002, launched a 

departmentwide effort to distinguish between core and non-core functions 

with an emphasis on retaining in-house only those functions deemed core 

to the warfighting mission. Under this approach, it tasked the defense 

components with developing plans to transition non-core functions to 

alternative sourcing arrangements or A-76 studies, if appropriate, as soon 

as possible. In advocating the use of alternatives, the Senior Executive 

Council noted that A-76 cost comparisons were lengthy, expensive, and 

hard on the workforce. Examples of alternate sourcing strategies cited by 

the Council included public-private partnering, employee stock ownership, 

and quasi-governmental organizations. Details about these and other 

alternatives can be found at appendix I. While use of A-76 studies was still 

permitted, emphasis was expected to be given to identifying alternate 

sourcing approaches that might be used to transfer non-core functions out 

of the department. 

Much publicity to this new core emphasis surrounded Army’s efforts 

under its program, which it designated as “the Third Wave.” The term 

“Third Wave” was used to distinguish this current effort from two previous 

sourcing efforts under A-76, the first occurring largely in the 1980s and 

the second beginning in the 1996-97 time period. Unlike the earlier two 

waves, which focused on A-76 studies of about 25,000 and 33,000 positions 

respectively, the scope of the Third Wave was to be significantly larger, 

potentially involving over 200,000 positions. This was of significant 

concern to government employees after several years of A-76 study efforts 

within DOD. The Army’s program also received much public attention 

 14 U.S. Department of Defense, Quadrennial Defense Review Report (Sept. 30, 2001). 

15 The Senior Executive Council is a high-level management committee established in 2001 

to (1) help guide efforts across the department to transform and improve the department’s 

business practices, and (2) to function as a board of directors for DOD. The Council is 

chaired by the Secretary of Defense and is comprised of the Deputy Secretary of Defense, 

the service secretaries, and the Under Secretary of Defense for Acquisition, Technology 

and Logistics. 
Page 9 GAO-03-818 Defense Management 

because of what Army officials have characterized as an unrelated, but 

parallel, effort to have a contractor (RAND) study options for rethinking 

governance of the Army’s arsenals and manufacturing plants.16 The Army 

has subsequently indicated it does not plan to pursue the options outlined 

in that study which ranged from privatization to creation of a federal 

government corporation to operate these facilities. On March 24, 2003, 

the Secretary of the Army directed that other action plans be developed 

to deal with these facilities. (See app. II for a summary of the actions 

directed.) 

Progress in assessing core functions has been varied and limited across 

the major Defense components, and affected by somewhat ambiguous and 

subjective definitions of what constitutes a “core function.” These multiple 

and somewhat ambiguous definitions of what is a “core function” have 

made it difficult for the components to easily employ the core competency 

approach to decision-making, and some DOD components have sought 

additional guidance and/or applied their own criteria to identify core 

functions. Even so, progress in assessing core functions has varied 

across the components, with the Army and the Air Force having made 

the most progress in their efforts. In addition, the Army, which has 

devoted the greatest attention to assessing core functions, has found that 

distinguishing between core and non-core functions, by itself, has limited 

value because that distinction alone does not necessarily prescribe a 

sourcing decision. 

DOD guidance to define a core function under the new program 

emphasis has been broad and, as a result, there are multiple and somewhat 

ambiguous definitions of “core,” leading some DOD components to seek 

additional guidance. The term “core” has had different meanings 

depending upon the context in which it was used. Moreover, there has 

been and remains a significant amount of subjectivity in defining “core” as 

there has been with the term “inherently governmental.” Recognizing the 

potential difficulty in applying the core competency-based approach, the 

Senior Executive Council provided several definitions of “core” as well as 

criteria for determining core competencies in its April 2002 

implementing memo. 

 16 William M. Hix et al., Rethinking Governance of the Army’s Arsenals and Ammunition 

Plants, RAND (Santa Monica, Calif., 2003). 

Progress in Assessing 

Core Functions Has 

Varied Across the 

Defense Components 

and Has Been 

Affected Somewhat 

by Definitions 

of “Core” 

Guidance in Defining 

Core Has Been Broad 

and Additional Guidance 

Sought 
Page 10 GAO-03-818 Defense Management 

As a starting point for its core-competency emphasis, a work group 

commissioned by the Senior Executive Council chose a business concept 

outlined in a 1990 Harvard Business Review article.17 The article provides 

several examples of corporations that identified their core competencies, 

helping them to become more successful than their competitors. The 

authors likened a diversified corporation to a business tree. For example, 

the trunk and major limbs are core products; the smaller branches are 

business units. While admitting this concept is difficult to apply to DOD, 

the Senior Executive Council nonetheless translated that business tree to 

a military application—the core services were described as the set of 

activities that actually contribute to the value of the end product (land, 

sea, and air operations), the business units were the units of a component 

command, the end products were military effects, and the customer was 

the combatant commander employing forces and resources. 

In adapting the definition of “core” from the Harvard Business Review 

article to the DOD environment, the Senior Executive Council defined 

core as “A complex harmonization of individual technologies and 

‘production’ (employment, delivery) skills that create unique military 

capabilities valued by the force employing [commander in chief]!” Several 

additional definitions were provided in the Council’s April 2002 memo to 

help clarify the reader’s understanding of the definition (see app. III). 

According to the memo, however, there are three themes common to each 

definition: (1) the knowledge and experience acquired by people, (2) the 

discrete and finite set of technologies the people employ, and (3) the 

business objectives to be achieved. It stated that DOD’s business objective 

to be achieved is warfare. 

The Senior Executive Council’s memo also provided some criteria for 

determining core competencies. According to the Council, a core 

competency 

• has potential application to a wide variety of national security needs, 

• provides a significant contribution to the combatant commander’s 

desired effect, 

• would be difficult for competitors to imitate, 

• provides the means to differentiate from competitors, 

• crosses organizational boundaries within an enterprise, 

 17 C.K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard 

Business Review, May-June 1990. 
Page 11 GAO-03-818 Defense Management 

• is a direct contributor to the perceived value of the service, 

• does not diminish with use, 

• deploys with forces, and 

• provides training and experience that forms the basis of ethos and culture. 

The memo also noted that these criteria are not “pass/fail” criteria. That is, 

some criteria may help to identify core competencies while others may 

not, and that these criteria are based on business concepts that have 

been adapted to the military domain. Furthermore, the memo stressed 

the importance of senior leadership judgment in identifying core 

competencies. 

According to various officials, the lack of a clear and concise definition of 

the terms related to the core concept initially made it difficult for the Army 

and Air Force to apply the core concept to their functions. Both services 

have subsequently supplemented the Senior Executive Council definitions 

with their own internal documents and specific guidance, which are 

discussed in the next sections.18 That notwithstanding, the definition of 

core remains somewhat broad in nature and subjective, and will likely 

remain so in the future. The Navy and Marine Corps have only recently 

begun their efforts to identify core functions, and have not yet sought to 

develop additional guidance. A Defense Logistics Agency official told us 

they did not use any additional guidance. 

DOD and service officials told us that while the concepts “inherently 

governmental” and “core” are similar and may overlap, they may not 

always be the same. Specifically, not all inherently governmental functions 

would be considered core, nor would all core functions be designated 

inherently governmental. For example, according to Army analysis, 

many civil functions performed by the Army Corps of Engineers, such 

as wetlands regulation and eminent domain authority, are inherently 

governmental, but they are not core to the Army’s mission. Conversely, we 

were told, certain medical services provided by doctors and nurses in the 

operating forces are not deemed to be inherently governmental; however, 

these services are considered to be core to the Army’s mission. 

 18 For example, the Army used its Field Manual No. 1, The Army, to provide additional 

guidance. The Army describes this as its capstone doctrinal manual, which, among other 

things, delineates the Army’s purpose, roles, and functions. 
Page 12 GAO-03-818 Defense Management 

The Senior Executive Council directed the services and defense agencies 

to inventory their organizations and identify their core functions, but only 

the Army and Air Force have made much progress in doing so. The Army 

took the lead in pursuing this initiative and has recently completed an 

effort to identify its core and non-core functions. The Air Force also 

initiated a core competency review, which focused predominately on 

military positions. The Navy and Marine Corps are in the early stages of 

assessing their core functions. The Defense Logistics Agency broadly 

identified its core and non-core competencies, but has not identified 

specific positions as core or non-core. 

The Army has recently completed an effort to identify its core and 

non-core functions for over 200,000 positions. Initially, the Army’s Third 

Wave program assumed that all commercial positions were non-core and 

thus potential candidates for performance by the private sector or other 

government agencies. However, it permitted its components to request 

exemption from the non-core designation and, as a result, considered 

appeals involving numerous functional areas. Some were sustained while 

others were not. The results of this process differed somewhat from the 

Army’s initial expectations that all non-core functions could be subject to 

competition or alternate sourcing, and the number of positions likely to be 

subject to alternate sourcing is not yet clear. 

In permitting its components to present a case for functions to be exempt 

from the non-core designation, the Army provided specific guidance on the 

submission of exemption requests and the factors to be used to evaluate 

those requests. An exemption request needed to provide a compelling case 

that a non-core designation could pose substantial and specific risks to 

core warfighting missions or would violate a statutory requirement 

affecting a function. The Army components submitted 24 requests for 

exemption from non-core designation, each representing one or more 

broad functional areas. For example, these areas included civilian 

personnel, installation management, law enforcement and criminal 

investigations, and both military and civilian career progression activities. 

Progress on Identifying 

Core Functions Has Varied 

Army Efforts Recently 

Completed 
Page 13 GAO-03-818 Defense Management 

The Army’s authority for reviewing and approving core-competency 

exemption requests was the Assistant Secretary of the Army for Manpower 

and Reserve Affairs. In evaluating the exemption requests, the Office of 

Manpower and Reserve Affairs supplemented the Senior Executive 

Council’s definitions of core with six core competencies identified by the 

Army in Army Field Manual 1 and other documents. The six competencies 

were depicted as: 

• Shape the security environment—provide a military presence. 

• Prompt response—provide a broad range of land power options to shape 

the security environment and respond to natural or manmade crises 

worldwide. 

• Forcible entry operations—provide access to contested areas worldwide. 

• Mobilize the Army—provide the means to confront unforeseen challenges 

and ensure America’s security. 

• Sustained land dominance—provide capabilities to control land and 

people across various types of conflicts. 

• Support civil authorities—provide support to civil authorities in domestic 

and international contingencies, including homeland security. 

After evaluating the appeals, the Army, in some instances, sustained the 

exemption requests, while, in other instances, they were denied. However, 

in many instances a mixed decision was rendered regarding individual 

functions within a broad functional area. This is illustrated by the Army’s 

determination of core competencies for two functions—medical services 

and information resources. 

In making its decisions, Army officials determined that medical activities 

could be considered core in some circumstances and non-core in others. 

The Army also found that, in some cases, functions considered to be 

core—such as information resources—contained elements that were 

designated non-core. 

The Army determined that many medical functions are core to the Army’s 

mission even though they are not classified as inherently governmental. 

The Army recognizes that medical functions do not require unique military 

knowledge or skills or recent experience in the operating forces to be 

performed. However, for troops deployed in theater (i.e., a war zone), 

medical functions do need to be performed by in-house personnel because 

reliance on host nation contracting for medical support could place 

significant risks on the Army forces. The Army has determined that the 

in-theater medical mission is a critical element of the Army’s ability to 

accomplish its core competencies. Even so, certain functions within the 
Page 14 GAO-03-818 Defense Management 

medical area can be considered both core and non-core. For example, 

the optical fabrication function—which is the ability to produce eyewear 

(replacement spectacles and protective mask inserts)—is considered a 

core competency in support of the operational forces close to the point of 

need in the area of engagement. However, this same function performed in 

the United States is not considered to be a core competency, and the Army 

states that this function may be reviewed for divestiture or privatization. 

Within the information resources function, the Army considers the 

management of information resources in a network-centric, knowledgebased workforce to be a core warfighting competency. This core 

competency includes information operations that support operating 

forces, and utilizes commercial technology adapted for military 

applications. Organizations and personnel performing functions that 

ensure command, control, and communications interoperability across 

Army, joint, interagency, and coalition forces are core functions and need 

to be kept in-house. However, other information resource functions—such 

as help-desk services—are deemed to be non-core and can be considered 

for possible outsourcing. 

Army officials said they recognized that once the determination was 

made that a function was considered to be core or non-core to the Army’s 

mission, the sourcing of the function would, in many instances, require 

additional analysis to determine the amount of core capability to be kept 

in-house and the risk the Army might face by sourcing the function. The 

types of risk to be considered in evaluating impacts upon a core mission 

are force management, operational, future challenges, and institutional.19

Additional factors must also be considered. For example, the Army 

determined that its casualty and mortuary affairs function is not a core 

mission, nor is it an inherently governmental function. However, national 

policy dictates that Army officials notify families of a casualty in person. 

Overall, the Army found the results of its review were somewhat contrary 

to its, and the Senior Executive Council’s, initial expectation that all 

 19 Force management risk includes the ability to recruit, retain, train, and equip sufficient 

numbers of quality personnel and sustain the readiness of the force while accomplishing its 

many operations tasks. Operational risk concerns the ability to achieve military objectives 

in a near-term conflict or other contingency. Future challenges risk involves the ability to 

invest in new capabilities and develop new operational concepts needed to dissuade or 

defeat mid- to long-term military challenges. Institutional risk entails the ability to develop 

management practices and controls that use resources efficiently and promote the effective 

operation of the Defense establishment. 
Page 15 GAO-03-818 Defense Management 

non-core functions should be subject to competition or alternative 

sourcing. As noted previously, the Army found the designation of “core” 

does not necessarily indicate military or government civilian performance 

is required or necessarily precludes competitive sourcing of the function. 

That is, a designation of “non-core” does not automatically mean that a 

function can, or should, be contracted out—other factors must also be 

considered. As a result, this has led to some uncertainty regarding how 

and to what extent the results of the Army’s core analyses will be used in 

sourcing decisions and this potentially has implications for other Defense 

components as well. While at this point, the Army is still deciding how to 

proceed with implementing the results of its core assessments, Army 

officials told us that the core decisions would be reflected in the Army’s 

2003 FAIR Act inventory. 

The Air Force focused its initial core competency review predominately 

on military positions. This was done because the Air Force wanted to 

identify functions performed by military personnel that might be 

realigned for civilian or contractor performance, thus permitting affected 

military personnel to be reassigned to operational areas where shortages 

of military personnel existed. All military positions were reviewed in 

terms of three main core competencies and six distinctive capabilities. 

The three institutional core competencies were depicted as: 

• Developing Airmen (the heart of combat capability). 

• Technology to Warfighting (the tools of combat capability). 

• Integrating Operations (maximizing combat capability). 

Six distinctive Air Force capabilities also considered were those related to: 

• Precision engagement—the ability to locate the objective or target, 

provide responsive command and control, generate the desired effect, 

assess the level of success, and retain the flexibility to reengage. 

• Rapid global mobility—the ability to rapidly and flexibly respond to the 

full spectrum of contingencies worldwide. 

• Information superiority—the ability to collect, control, exploit and defend 

information while denying the adversary the same. 

• Agile combat support—the ability to provide combat support in a 

responsive, deployable, and sustainable manner. 

• Air and space superiority—the ability to establish control over the entirety 

of air and space, providing freedom from attack and freedom to attack. 

• Global attack—the ability to find, fix, and attack targets anywhere on the 

globe. 

Air Force Efforts Focus on 

Military Positions 
Page 16 GAO-03-818 Defense Management 

Although the core competency review process did involve some subjective 

judgment, each position was classified into three basic categories—those 

(1) requiring military performance, (2) requiring government civilian 

performance, and (3) available for contractor consideration. As a result 

of this review, 17,800 military positions were identified for potential 

conversion to either government civilian or contractor civilian positions. 

Our prior work has identified various instances where personnel costs are 

generally less for civilian personnel than for military.20 An additional 

4,477 military positions were identified for possible future realignment 

through other reengineering efforts, such as adjusting the manpower 

requirements process and conducting a business case analysis for 

alternative installation support practices, for a total of 22,277 military 

positions. Because many of the functions reviewed involved both military 

and civilian personnel, an additional 8,900 Air Force civilian positions 

were identified for possible conversion to contractor performance. An Air 

Force official stated that the service hopes to do a more in-depth review 

on the civilian side in the future; however, at the moment, none is planned. 

The Air Force expects the number of positions that can be competed in its 

FAIR Act inventory will be increased as a result of this review. 

In the near-term, as a direct result of the core function review, the 

Air Force has indicated it plans to outsource a significant portion of 

the workload of its Pentagon Communications Agency currently 

performed by over 400 military personnel. Although Air Force officials 

indicated the service has the resources to implement this action, other 

efforts may have to be postponed until the funds are available. To 

move military positions to operational warfighting positions, additional 

government civilian or contractor personnel would be needed to replace 

the military personnel. Air Force officials told us that moving the military 

personnel out of non-core functions is a high priority, but because of the 

high cost involved in adding funds to the operations and maintenance 

appropriation account to pay for replacement civilian or contractor 

 20 See U.S. General Accounting Office, Base Operations: Challenges Confronting 

DOD as It Renews Emphasis on Outsourcing, GAO/NSIAD-97-86 (Washington, D.C.: 

Mar. 11, 1997); DOD Force Mix Issues: Converting Some Support Officer Positions to 

Civilian Status Could Save Money, GAO/NSIAD-97-15 (Washington, D.C.: Oct. 23, 1996); 

and DOD Force Mix Issues: Greater Reliance on Civilians in Support Roles Could 

Provide Significant Benefits, GAO/NSIAD-95-5 (Washington, D.C.: Oct. 19, 1994.) 
Page 17 GAO-03-818 Defense Management 

positions, it is currently an unfunded priority.21 They recently estimated 

this additional cost to be about $5 billion over the next 5 years. Moreover, 

in its internal budget planning documents for fiscal year 2004, the 

Air Force stated that its number one unfunded priority is funding 

($2.34 billion) for moving the initial 6,300 military positions out of 

non-core functions. As a result, it is not yet clear to what extent larger 

number of conversions would take place and the extent to which they 

might involve direct conversions or be done as part of public-private 

competitions using the A-76 process. 

As mentioned earlier, the Marine Corps has recently begun its effort to 

identify core functions and has convened a working group to determine 

how to proceed. The Secretary of the Navy tasked the Navy components 

to determine their core competencies on April 18, 2003, so this effort is 

still in its infancy. The Defense Logistics Agency has identified four 

core competencies—customer knowledge, integrated combat logistics 

solutions, rapid worldwide response, and single face to industry and 

customers. In addition, it identified 10 non-core competencies. These are: 

base operations; warehousing services; transportation services; document 

automation, printing and production services; marketing of unneeded 

materiel; computer application software; computer operations and 

database management support; cataloging; payroll services; and civilian 

personnel services. However, it has not determined which positions are 

considered to be core. 

 21 Military positions are funded out of the Military Personnel Appropriation accounts. With 

military personnel being shifted to other positions, this does not free up funds that could be 

used to increase funding for replacement personnel in the Operations and Maintenance 

Appropriation accounts. 

Other DOD Component Efforts 

Are Not as Advanced 
Page 18 GAO-03-818 Defense Management 

The range of alternatives to A-76 likely to be pursued under the core 

competency-based approach is not yet clear given limitations in the core 

analyses, but DOD has made some progress toward identifying and/or 

using some sourcing arrangements that are alternatives to A-76. Some 

were identified as part of an initiative to identify alternatives through the 

use of pilot projects, and a few others have been identified by the services 

as they have focused on the core initiative. At the same time, some DOD 

officials indicated that the use of some alternatives could be limited 

without special legislative authorities and/or repeal of various existing 

prohibitions. The use of alternative sourcing could also be affected by the 

emphasis on A-76 competitions and OMB’s goals for the department. 

DOD has made some progress in identifying and using sourcing 

arrangements that are alternatives to A-76, including some as part of an 

initiative to identify alternatives through use of pilot projects, and a few 

others that have been identified by the services as they have focused on 

the core initiative. These projects are in various stages of implementation. 

DOD’s Senior Executive Council and Business Initiative Council22

asked the components to identify and submit at least one pilot or 

“pioneer” project to provide alternative sourcing methods for widespread 

implementation. Ten projects were approved by the Business Initiative 

Council and were then submitted to OMB for approval. OMB approved 

eight projects in August 2002. The department later withdrew two projects 

because the timing was not appropriate. The following table provides a 

listing of the 10 Pioneer Projects. (A description of the ongoing pioneer 

projects can be found in app. IV.) 

 22 The Business Initiative Council, an organization that reports directly to the Senior 

Executive Council, was established in 2001 to encourage the military services to 

explore new money-saving business practices to help offset funding requirements for 

transformation and other high-priority efforts. It is headed by the Under Secretary of 

Defense for Acquisition, Technology and Logistics, and its membership consists of the 

service secretaries, the Vice Chairman of the Joint Chiefs of Staff, the Under Secretary of 

Defense (Comptroller), and the Under Secretary of Defense for Personnel and Readiness. 

Some Progress 

Made in Identifying 

Alternative Sourcing 

Arrangements, but 

the Extent to Which 

Alternatives Are 

Likely to Be Used 

Is Unclear 

Alternate Sourcing 

Approaches Identified 

through Pilot Projects 

and Other Initiatives 
Page 19 GAO-03-818 Defense Management 

Table 1: Pioneer Projects Submitted to OMB 

Title 

Proposed sourcing 

method 

Approved by 

OMB 

Disapproved by 

OMB 

Withdrawn by 

DOD 

Reengineer existing information technology 

structure 

Streamlined A-76 x 

 

Metalworking machinery repair/rebuild 

services 

Waiver to A-76 x 

 

Desk top management services New requirement x 

Groundbreaker II (information technology 

support) 

New requirement 

 

x 

Municipal services partnership for base 

support 

Direct service contract 

(legislation required) 

x 

 

Randolph Air Force Base MEO (Most Efficient 

Organization) developed with an A-76 

competition to follow at a later date 

Reengineering x 

Revitalize and reshape the workforce Reengineering x 

Ophthalmic services Divestiture x 

Brooks city-base partnership Divestiture x 

White House Communication Agency military 

manpower 

Military conversion 

 

x 

Source: DOD. 

The projects propose to use a variety of alternatives, including partnering 

and divestiture, and are in varying stages of implementation, as noted in 

appendix IV. For example, the Army previously developed a partnership 

with the city of Monterey, California, to provide municipal services 

needed for the operation of DOD assets in Monterey County. Because of 

the success of this project, the Army submitted legislation to Congress 

that would allow contracting for municipal services defense-wide.23 In 

another example, the Navy has identified optical (eyewear) fabrication 

as a potential candidate for divestiture, because that service is readily 

available in the private sector. However, this project is still in the 

conceptual phase and no decision will be made until a thorough analysis 

has been completed to determine the most appropriate sourcing method. 

DOD was required to go to OMB for approval of these Pioneer Projects to 

determine if they would count toward the competitive sourcing goals set 

by OMB. The criteria for OMB approval required that projects involve an 

 23 This legislative request was included as part of the department’s request for 

legislation submitted to Congress for consideration as part of the fiscal year 2004 Defense 

Authorization bill. As of May 2003, this proposal was not included in either the House or 

Senate approved versions of the bill. 
Page 20 GAO-03-818 Defense Management 

element of divestiture, competition, or the transfer of responsibility to 

other private or public sector performers. The two pilot Pioneer Projects 

that were not approved by OMB had proposed using reengineering or 

the development of most efficient organizations as an alternative to A-76 

competition. These two projects were not approved because they neither 

involved the divestiture of responsibility for performing the function nor 

contained a near-term element of competition. DOD officials withdrew 

two others because they believed timing was not appropriate for those 

actions. 

In responding to OMB’s draft of its most recent revision to Circular A-76,

24

we stressed the importance of considering alternative approaches to 

accomplishing agency missions. Such approaches encompass a wide range 

of options, including restructuring, privatizing, transferring functions to 

state and local governments, terminating obsolete functions, and creating 

public-private partnerships. Given that these options can result in 

improved efficiency and enhanced performance, we recommended at 

that time that OMB continue to encourage agencies to consider these 

and other alternatives to A-76 competition. The revised circular allows 

agencies to deviate from certain requirements of the circular with prior 

written approval from OMB. For example, agencies are permitted to 

explore innovative alternatives, including public-private partnerships, 

public-public partnerships, and high performing organizations, with prior 

written approval from OMB for a specific competition. 

In addition to these Pioneer Projects, some other initiatives to use an 

alternate sourcing approach have emerged within the military services. 

For example, the department plans to transfer its personnel security 

investigations function, now performed by the Defense Security Service 

to the Office of Personnel Management. In another instance, the Secretary 

of the Army recently determined that the long-term incarceration of 

prisoners was not a core competency of the Army. The department is in 

the process of finalizing plans for transferring its military-dedicated prison 

at Fort Leavenworth, Kansas,25 to the Federal Bureau of Prisons. Although 

exact savings from this transfer have not yet been determined, an Army 

official stated that transferring the facility to the Bureau of Prisons would 

 24 U.S. General Accounting Office, Proposed Revisions to OMB Circular A-76, 

GAO-03-391R (Washington, D.C.: Jan. 16, 2003). 

25 This prison houses level III prisoners from each of the military services. This level 

has been defined as those prisoners with a sentence of 7 years or more. 
Page 21 GAO-03-818 Defense Management 

free up almost 500 military positions. In addition, Army officials believe it 

will allow for efficiency gains because the cost to incarcerate a prisoner 

per year by the Bureau of Prisons is expected to be less than half what it 

costs the Army to do so. 

The services have been charged by the Senior Executive Council to 

identify and use sourcing arrangement alternatives to A-76 for their 

non-core functions; however, DOD and the services have encountered 

potential limitations to their efforts. These include legislative impediments 

and the requirement to support the President’s Management Agenda to 

meet the competitive sourcing goals of OMB. 

Various officials in the Office of the Secretary of Defense and the 

services expressed uncertainty over the extent to which existing 

legislative prohibitions or the lack of legislative authority could limit the 

pursuit of some alternatives. They noted existing prohibitions such as 

those contained in 10 U.S.C. § 2461,26 and section 801427 of the annual 

appropriations acts that require public-private competition in all but a 

few circumstances. In citing areas where legislation might be needed, they 

noted that to complete the planned transfer of the personnel security 

investigative functions to the Office of Personnel Management, DOD 

recently submitted a legislative request to Congress seeking authority to 

do so as part of its legislative package known as the Defense 

Transformation for the 21st Century Act of 2003. Specifically, the 

legislation would allow DOD to transfer this non-core function to the 

Office of Personnel Management, which would allow for consolidation of 

requests for security clearances under this agency. Alternatively, Army 

officials told us that in the initiative to transfer its Fort Leavenworth 

prison to the Federal Bureau of Prisons, they did not believe special 

authorizing legislation is required. They believe DOD is not required, by 

 26 Section 2461 requires, among other things, that before any commercial or industrial type 

function that as of October 1, 1980, was being performed by DOD civilian employees is 

changed to private sector performance, DOD must report to the Congress, conduct an 

analysis showing that private-sector performance will result in a savings to the government 

over the life of the contract, and certify that the analysis is available for examination. 

27 This provision requires that DOD certify its most efficient and cost-effective organization 

analysis to congressional committees before converting any activity performed by more 

than 10 DOD civilian employees to contractor performance. 

Potential Limitations on 

Use of Alternatives Exist 

Legislation Can Limit Use 

of Alternatives 
Page 22 GAO-03-818 Defense Management 

statute,28 to maintain prisoners in DOD facilities and may use any facility 

under the control of the U.S. government. 

DOD officials have also requested some legislative relief to implement 

some initiatives that they have already identified. For example, DOD 

has requested the repeal of 10 U.S.C. § 246529 to allow the department 

to bid and compete contracts for security guard services and for the 

performance of firefighting functions at military installations in the 

continental United States.30 DOD believes such contracts would be 

cost-effective and provide a needed flexibility in exigent situations, 

such as September 11, 2001. In another case, DOD has sought legislative 

authority to contract directly with local governments for municipal 

services based on the success of its Pioneer Project in Monterey, 

California. Doing so would allow DOD components to use this type of 

arrangement at other locations, as appropriate. 

The department, in attempting to meet OMB’s goals to conduct A-76 

competitions, is unlikely to pursue alternative sourcing on a large scale. 

One of the five governmentwide initiatives in the President’s Management 

Agenda is competitive sourcing. Under this initiative, OMB has directed 

agencies to compete 15 percent of positions deemed commercial in their 

fiscal year 2000 FAIR Act inventories by the end of fiscal year 2003, with 

the ultimate goal of 50 percent by the end of fiscal year 2008. For DOD, 

this represents approximately 226,000 positions. Although OMB has 

recently allowed some alternative sourcing methods that contain an 

element of competition to be counted toward meeting these goals, DOD 

expects that the vast majority of positions will be competed under A-76 

 28 10 U.S.C. § 858 (Sentences of confinement adjudged by a court-martial may be carried 

into execution in any facility under control of the United States). 10 U.S.C. § 951 (The 

military may but is not required to provide for the establishment of correctional facilities). 

29 Also included in the Defense Transformation for the 21st Century Act of 2003. Generally, 

10 U.S.C. § 2465 prohibits DOD from contracting for firefighters and security guards except 

when (1) the contract is to be performed overseas, (2) when the contract is to be 

performed on government-owned but privately operated installations, or (3) when the 

contract (or renewal of the contract) is for the performance of a function already under 

contract as of September 24, 1983. In addition, there is temporary exception for contracts 

for security services with local governments with respect to closing bases. 

30 We have previously reported that the best way to determine if savings can be achieved 

from contracting firefighter and security guard services is by completing an A-76 study 

at each base where these services are being considered for conversion to contract. See 

U.S. General Accounting Office, Base Operations: Contracting for Firefighters and 

Security Guards, GAO/NSIAD-97-200BR (Washington, D.C.: Sept. 12, 1997). 

Supporting the President’s 

Management Agenda May 

Limit Use of Alternatives 
Page 23 GAO-03-818 Defense Management 

competitions. Positions competed under A-76, of course, would not be 

available for consideration for alternative sourcing methods. 

While the department initially placed a priority on identifying alternative 

sourcing arrangements, the most recent department guidance is less 

clear regarding the priority of alternate sourcing arrangements over 

A-76 competitions. The Business Initiative Council recently directed 

the defense components to submit the status of their core competency 

reviews and detailed competitive sourcing plans—including both A-76 

and alternatives to A-76—by June 2, 2003. The Business Executive Council 

will review these plans in preparation for the fiscal 2005-2009 preliminary 

budget review. Details on these plans were not available at the time we 

completed our review. 

Limited progress in implementing the core competency-based approach, 

coupled with OMB’s emphasis on the use of A-76 in conjunction with the 

President’s Management Agenda, suggest that the use of A-76 may remain 

a key vehicle for sourcing decisions involving non-core and non-inherently 

governmental functions. Nonetheless, despite its experience in 

implementing competitive sourcing, the department faces a number of 

challenges related to its A-76 program. 

OMB has established ambitious A-76 competitive sourcing program goals 

for the department to meet in both the short term and the long term, even 

while DOD is focusing on its core competency approach. The department’s 

A-76 goals for the number of positions to be studied and the time frames 

for accomplishing those studies have varied over time, reaching a high in 

1999 of studying 229,000 positions between 1997 and 2005. However, 

DOD experienced difficulty in identifying eligible functions for study and 

consequently, in 2001, reduced the goal to study 160,000 positions between 

1997 and 2007. Recently, DOD’s study goals have increased because of 

OMB’s competitive sourcing goals. To meet OMB’s goal of directly 

converting or studying 15 percent of the 453,000 commercial activity 

positions identified in the 2000 FAIR Act inventories by the end of fiscal 

year 2003, DOD would need to complete A-76 studies on about 

68,000 positions between fiscal year 2000 and the end of fiscal year 2003.31

Then, to meet the larger goal of 50 percent, DOD would need to study an 

 31 As of June 1, 2003, DOD reported that it has met OMB’s 15-percent goal. 

DOD Expected to 

Maintain an Active 

A-76 Competitive 

Sourcing Program 

OMB Has Established 

Ambitious A-76 Program 

Goals for DOD 
Page 24 GAO-03-818 Defense Management 

additional 158,000 positions in the out years (fiscal years 2004-08). This 

represents a total of 226,000 positions to be studied, far more than DOD 

has been able to complete in a similar time period. Figure 1 illustrates 

OMB’s goals for DOD compared to what DOD has completed at the end of 

fiscal year 2002. 

Figure 1: DOD’s A-76 Positions Completed and OMB’s Goal, Fiscal Years 1997-2008 

The strength of DOD’s A-76 program is shown in the number of positions 

announced or planned for study, those completed, and those still ongoing. 

Table 2 provides data on the number of positions the department has 

announced for study under its A-76 program since its resurgence in 1997. 

Table 2: DOD Positions Announced for Study under A-76, by Component, 

Fiscal Years 1997-2002 

 Fiscal year 

Component 1997 1998 1999 2000 2001 2002 Total

Army 10,878 14,430 8,757 381 517 426 35,389

Navy 11,460 10,415 10,470 6,445 5,273 2,516 46,579

Air Force 5,674 8,442 8,161 4,124 1,553 904 28,858

Marine Corps 0 0 4,324 704 0 13 5,041

Defense agencies 978 2,220 3,953 533 528 3,442 11,654

Total 28,990 35,507 35,665 12,187 7,871 7,301 127,521

Source: DOD’s Commercial Activities Management Information System (CAMIS) as of April 2003. 

The number of positions planned for study by year for each component for 

fiscal years 2003-08 was not available, but it would seem to require much 

greater numbers of announcements per year than were made in recent 

years. The services are currently determining the number of positions they 

plan to study in future years, including the number of military and civilian 
Page 25 GAO-03-818 Defense Management 

positions to be studied, and are required to submit preliminary data to the 

Office of the Secretary of Defense by June 2, 2003. However, as noted, the 

total number of positions that would be required to be studied for fiscal 

years 2004-08 to meet OMB’s target for DOD is a total of 158,000 positions. 

Table 3 shows the number of positions completed in A-76 studies since 

1997. Of the total, 48,921 were civilian positions and 19,336 were 

military positions. 

Table 3: Number of Positions for Which A-76 Studies Have Been Completed, 

by Component, Fiscal Years 1997-2002 

 Fiscal year 

Component 1997 1998 1999 2000 2001 2002 Total

Army 26 129 691 1,538 7,534 10,423 20,341

Navy 82 234 2,936 4,214 5,323 2,382 15,171

Air Force 1,838 3,930 2,993 5,915 6,352 4,450 25,478

Marine Corps 0 0 0 41 551 1,214 1,806

Defense agencies 306 894 361 1,400 1,008 1,492 5,461

Total 2,252 5,187 6,981 13,108 20,768 19,961 68,257

Source: DOD Commercial Activities Management Information System data, as of March 2003. 

Table 4 shows the number of positions being reviewed in ongoing A-76 

studies. Of the total, 23,766 are civilian positions and the remaining 2,622 

are military positions. 

Table 4: Number of Positions for Which A-76 Studies Are Ongoing, by Component 

and Year When Study Was Announced, Fiscal Years 1999-2003 

 Fiscal year 

Component 1999 2000 2001 2002 2003 Total

Army 1,605 368 277 417 0 2,667

Navy 2,353 4,622 4,118 2,509 92 13,694

Air Force 1,241 264 321 876 156 2,858

Marine Corps 45 489 0 13 1,041 1,588

Defense agencies 1,448 506 3,046 581 0 5,581

Total 6,692 6,249 7,762 4,396 1,289 26,388

Source: DOD Commercial Activities Management Information System data, as of April 2003. 

As shown in table 3 above, DOD had already studied over 68,000 positions 

through fiscal year 2002, although OMB did not count approximately 

14,000 positions contained in A-76 studies completed during fiscal years 

1997-99 toward the 15-percent goal because the positions studied were 
Page 26 GAO-03-818 Defense Management 

not derived from DOD’s 2000 FAIR Act inventory. Nonetheless, OMB 

permitted use of nearly 54,000 of the positions for which DOD 

subsequently completed studies, leaving the department approximately 

14,000 positions to study by the end of fiscal year 2003. DOD recently 

reported that it has met its 15-percent goal by completing competitions in 

excess of 71,000 positions between October 1,1999, through June 1, 2003. 

DOD hopes to reach agreement with OMB to meet its additional 

158,000-position study requirement through a combination of A-76 

studies and alternatives to A-76, and change the period of study from 

fiscal years 2004-08 to fiscal years 2005-09. Regardless, this longer-term 

goal could be a challenge, requiring completion of a significantly larger 

number of positions for study than has actually been completed in similar 

periods in the past. For example, between fiscal years 1997 and 2002, 

DOD completed competition studies for about 68,000 positions. Under 

the new goals, DOD would be required to complete studies involving 

158,000 positions during a 5-year period between fiscal years 2004-08. This 

is more than double what DOD has been able to complete in the past 

during a similar time frame. 

In addition to size of effort required to meet OMB’s out-year study goals, 

DOD faces a number of challenges in meeting OMB’s A-76 program goals. 

As we have tracked DOD’s progress in implementing its A-76 program 

since the mid- to late-1990s, we have identified various challenges and 

concerns that have surrounded the program.32 We believe those challenges 

and concerns are still relevant to the department’s current A-76 program. 

They include (1) the time required to complete the studies, (2) the cost and 

other resources required to conduct and implement the studies, and 

(3) the selection and grouping of positions to compete. 

In addition, as noted earlier, the Army’s core competency review has 

shown that the designation of “core” does not necessarily mean that 

in-house employees should perform a function, nor does the designation 

of “non-core” mean a function should necessarily be considered for 

alternative sourcing or A-76 competitions. This may cause further 

 32 U.S. General Accounting Office, DOD Competitive Sourcing: Some Progress, but 

Continuing Challenges Remain in Meeting Program Goals, GAO/NSIAD-00-106

(Washington, D.C.: Aug. 8, 2000); and DOD Competitive Sourcing: Questions About 

Goals, Pace, and Risk of Key Reform Initiatives, GAO/NSIAD-99-46 (Washington, D.C.: 

Feb. 22, 1999). 

DOD Faces Other 

Challenges in Meeting A-76 

Goals 
Page 27 GAO-03-818 Defense Management 

difficulties in selecting and grouping functions for A-76 reviews or other 

sourcing alternatives. 

OMB’s revised A-76 circular states that standard competitions33 shall not 

exceed 12 months from public announcement (start date) to performance 

decision (end date). Under certain conditions, a time limit waiver of no 

more than 6 months can be granted. The revised circular also states that 

agencies shall complete certain preliminary planning—such as scope, 

baseline costs, and schedule—before public announcement. Even 

so DOD’s studies have historically taken significantly longer than 

12-18 months. DOD’s most recent data indicate that the studies take 

on average 20 months for single-function studies and 35 months for 

multifunction studies. It is not clear how much of this time was needed for 

planning that will now be outside the revised circular’s study time frame. 

Once DOD components found that the studies were taking longer than 

initially projected, they realized that a greater investment of resources 

would be needed than originally planned to conduct the studies. We 

previously reported that the President’s 2001 budget showed a wide 

range of projected study costs, from about $1,300 per position studied 

in the Army to about $3,700 in the Navy.34 DOD is now estimating costs 

at $3,000 per position for new studies beginning in fiscal year 2004. 

However, the much larger number of studies required to be completed in 

the out-years to meet OMB’s study goals could require DOD components 

to devote much greater total resources to this effort than in the past. 

In addition, DOD components, particularly the Air Force, are attempting 

to shift military personnel away from commercial type functions to those 

more directly related to warfighting. As noted above, because these 

functions are not being eliminated, new operations and maintenance 

account funds will have to be provided to pay for the additional civilians 

or contractors that perform the function(s) currently being performed by 

uniformed personnel. As previously mentioned in the report, the Air Force 

alone has recently estimated this additional cost to be about $5 billion 

over the next 5 years. 

 33 Streamlined competitions allow for an abbreviated source selection for 65 or fewer 

civilian positions and/or any number of military personnel. Streamlined competitions are 

to be completed within 90 days, with a possible extension of no more than 45 days. 

34 GAO/NSIAD-00-106. 
Page 28 GAO-03-818 Defense Management 

This is an issue other services have also encountered in the past and 

will in the future as they plan to shift military personnel away from 

commercial positions into warfighting positions, either as a result of its 

core assessment or as part of its A-76 studies. We have not seen precise, 

reliable figures on the extent to which these conversions may occur, and 

the extent to which all affected military personnel would be needed in 

warfighting positions. In the past we identified instances where service 

components were required to absorb these costs without additional 

resources. We recommended in our 2000 report that the Secretary of 

Defense take steps to ensure that the services increase funding for 

operation and maintenance accounts, as necessary, to fund the civilian 

and contractor personnel replacing military positions that have been 

transferred to meet other needs.35 The department acknowledged that 

this practice would require the services to program additional funding for 

operation and maintenance accounts, viewing this as a service investment 

decision. However, given the increased emphasis the department has 

placed on moving the military from commercial functions to warfare, 

officials from the Army and the Air Force have expressed concern that 

there were not adequate funds to replace the military with civilian or 

contractor personnel once their positions have been competed or 

transferred. This can have the effect of either limiting the number of 

conversions that can be made or requiring Defense components to absorb 

the costs within their existing budgets, creating limitations in other 

program areas. 

As we have previously reported, selecting and grouping functions and 

positions to compete can also be difficult. Some functions may be spread 

across different geographic locations or may fulfill a roll that blurs the 

distinction between “commercial” and “inherently governmental,” thus 

preventing the packaging of some commercial positions into suitable 

groups for competition. In addition, as previously noted, DOD excluded 

certain commercial functions in its FAIR Act inventories from 

competition. DOD’s fiscal year 2002 FAIR Act inventory exempted 

171,698 positions from competition because of statutory, national security, 

or operational concerns. Further, as we have previously reported, most 

services have already faced growing difficulties in finding enough study 

candidates to meet their A-76 study goals.36 Finally, use of alternatives 

 35 GAO/NSIAD-00-106. 

36 GAO/NSIAD-00-106. 
Page 29 GAO-03-818 Defense Management 

under the core-competency approach could also limit positions available 

for A-76 study. 

Progress varies among DOD components in assessing core competencies 

and identifying and pursuing alternative sourcing strategies. Even so, some 

limitations have been identified which indicate that, contrary to some 

initial expectations, the determination of whether a function is core by 

itself will not automatically lead to a sourcing decision because, as the 

Army has discovered, other factors can also affect sourcing decisions. 

Clarification of the department’s expectations for sourcing decisions is 

needed along with additional guidance on other factors that may need to 

be considered in sourcing decisions. Otherwise, the components may be 

left with unrealistic expectations on making sourcing decisions or they 

may make changes in sourcing that later prove to be problematic. 

Under the core-competency process, the Air Force identified large 

numbers of military personnel who could be reassigned to meet other 

military requirements and be replaced by civilian or contractor personnel 

who may be a more economical alternative. However, to accomplish this 

reassignment, Air Force officials stated that it would need to find funds 

for replacement personnel out of operations and maintenance accounts. 

This is indicative of what other services are likely to face in seeking to 

accomplish such conversions—the need for additional funding in 

operations and maintenance accounts to support these conversions. 

Such conversions may be a more cost-effective alternative than simply 

increasing military end-strength where shortages exist in military 

positions. However, decisions to replace military personnel with civilians 

or contractors without identifying sources for increases in operations and 

maintenance funds to support those decisions could stress the ability of 

the operations and maintenance account to meet other pressing needs. 

We recommend that the Secretary of Defense, through the Senior 

Executive Council, clarify its expectations for DOD components in 

making sourcing decisions based on core competency assessment results 

and provide additional guidance identifying the range of additional factors 

to be considered once the determination is made that a function is not 

considered core. 

We also recommend that the Secretary of Defense require DOD 

components to ensure that decisions to convert functions performed 

by military personnel to performance by civilians or contractors are 

Conclusions 

Recommendations 
Page 30 GAO-03-818 Defense Management 

predicated on having clearly identified sources of funding to support 

those decisions. 

The Principal Assistant Deputy Under Secretary of Defense (Installations 

and Environment) provided written comments on a draft of this report. 

The department generally concurred with our recommendations. With 

respect to our first recommendation, the department agreed that, in 

addition to the determination of core competency, there are additional 

steps necessary to making effective sourcing decisions. However, the 

response did not indicate what specific guidance, if any, would be 

provided to clarify and assist the components in making sourcing 

determinations. Instead, the department suggested that core assessments 

would be used as input to the Inherently Governmental Commercial 

Activities Inventory and that the department’s guidance on how to prepare 

these inventories will be continually refined to help the sourcing decision 

process. To the extent the department continues to emphasize core 

competency assessments and alternatives to A-76 competitions in making 

sourcing decisions, we still believe that additional guidance is needed to 

assist components on factors other than the designation of core or 

non-core that need to be considered when making a souring decision. 

With respect to the second recommendation, the department agreed that 

the identification of adequate resources is a critical factor in meeting its 

competitive sourcing goals and, consequently, the response ensures that 

they will be properly funded. The department also provided a number of 

technical comments, which we incorporated into the report, where 

appropriate. The department’s comments are reprinted in their entirety in 

appendix V. 

As requested by the Ranking Minority Member of the House Committee on 

Armed Services, Subcommittee on Readiness, we reviewed DOD’s plans 

for sourcing non-core functions and the effect this may have on its A-76 

program. Specifically, the objectives of this report were to assess (1) the 

department’s progress in assessing its core functions as a basis for 

sourcing decisions, (2) the plans and progress DOD has made in 

identifying and implementing alternatives to A-76, and (3) the current 

status of DOD’s A-76 program. 

To evaluate the department’s progress in assessing its core functions as 

a basis for sourcing decisions, we met with responsible officials from the 

Senior Executive Council, the Business Initiative Council, and the Office 

of the Secretary of Defense to identify plans and guidance for this 

Agency Comments 

and Our Evaluation 

Scope and 

Methodology 
Page 31 GAO-03-818 Defense Management 

initiative. We also met with officials from the Army, the Air Force, the 

Navy, the Marine Corps, and the Defense Logistics Agency to identify their 

implementation plans, guidance, and analyzed available data to assess 

progress being made. Our work was conducted in the Washington, D.C., 

metropolitan area. 

To evaluate the plans and progress DOD has made in identifying and 

implementing alternatives to A-76, we met with officials in organizations 

identified above and obtained and analyzed relevant documentation 

pertaining to alternatives identified. Additionally, we spoke with 

representatives from the Defense Contract Management Agency and the 

Defense Finance and Accounting Service about their Pioneer projects. 

Likewise, to assess the status of DOD’s A-76 program, we met with 

cognizant officials within DOD and its key components to update 

information we had previously obtained in other recent studies in this area 

concerning studies planned and completed and we updated information 

we had previously obtained regarding challenges associated with this 

program. Data on the number of A-76 competitions used in this report 

were based on DOD’s Commercial Activities Management Information 

System (CAMIS) Web-based system. Because the numbers change daily, 

what we reported are the precise figures in the database at the specified 

point in time. We have previously identified limitations in accuracy and 

completeness of data included in this system, which limit the precision of 

information included in the system. Since then, the department has made 

changes to improve the accuracy of data in the system, and the database 

remains the principal source of aggregate information on studies 

underway and completed. However, we did not audit the accuracy of the 

numbers in the database. We conducted our review from October 2002 to 

May 2003 in accordance with generally accepted government auditing 

standards. 

We are sending copies of this report to the appropriate congressional 

committees; the Secretary of Defense; the Secretaries of the Army, 

the Navy, and the Air Force; the Commandant of the Marine Corps; and 

the Director, Office of Management and Budget. We will make copies 

available to others upon request. In addition, the report will be available at 

no charge on the GAO Web site at http://www.gao.gov. 
Page 32 GAO-03-818 Defense Management 

If you or your staff have questions regarding this report, please contact 

me on (202) 512-8412 or holmanb@gao.gov. Other contacts and key 

contributors to this report are listed in appendix VI. 

Sincerely yours, 

Barry W. Holman, Director 

Defense Capabilities and Management 
Appendix I: Alternatives to A-76 for Sourcing 

Non-Core Competencies 

Page 33 GAO-03-818 Defense Management 

In its April 2002 memo, the Senior Executive Council noted that “there are 

a number of imaginative alternatives to DOD ownership of Non-Core 

competencies.” The memo provided detailed information on six specific 

alternatives—employee stock ownership plans, transitional benefit 

corporations, negotiation with private sector, city-base partnership, 

strategic partnering, and quasi-government corporations. Following is a 

description of the concept, an example of usage within the government, 

and recommended Internet sites for each alternative, based on the Senior 

Executive Council memo. 

Concept: Mechanism used to spin off existing government activities to 

form an employee-owned company. 

Description: The ESOP gives federal workers the ability to control 

their own destiny and obtain a stake in the successful outcome of a 

new business. ESOP is a contribution benefit plan that buys and holds 

company stock. Shares in the trust are allocated to individual employee 

accounts. While many privatizations result in layoffs and disruptions, 

ESOPs save jobs, retain critical skills, and provide seamless customer 

service to federal agencies. 

Where Used Previously: U.S. Investigative Services (1995) 

Internet Sites: http://www.nceo.org/esops/index.html and 

http://americancapitalonline.com/datacenter/articleaspArticleID145.html 

Concept: Umbrella organization created to facilitate smooth transition of 

government employees. 

Description: The TBC is designed to transition employees to the private 

sector while maintaining their federal benefits. Normally, a transition 

period is established where the government continues to pay for the 

benefits and then the new private company will eventually pay for those 

benefits back through the federal government. In addition, the TBC can 

contract with the private sector and partner with other governmental, 

private sector, educational or not-for-profit entities. It maintains core 

capabilities, preserves expertise of key personnel, finds a “soft landing” for 

underutilized workers, creates business environment for new growth, and 

provides a new business model for the government. 

Appendix I: Alternatives to A-76 for Sourcing 

Non-Core Competencies 

Employee Stock 

Ownership Plans (ESOP) 

Transitional Benefit 

Corporations (TBC) 
Appendix I: Alternatives to A-76 for Sourcing 

Non-Core Competencies 

Page 34 GAO-03-818 Defense Management 

Where Used Previously: Department of Energy 

Internet Site: http://www.reedsmith.com/db30/cgi-bin/pubs/a76costs.pdf 

Concept: Negotiated transfer of government workforce to a private 

company. 

Description: Negotiate with the private sector in the outsourcing of a 

government function to the private sector. However, the government 

negotiates to have the workers who performed the function be hired by 

the contractor. The goal is to get the employees comparable pay, at the 

same location (for an agreed upon minimum time period), and a matched 

retirement plan. It offers stability that a normal A-76 cost comparison 

study does not provide. 

Where Used Previously: Army Logistics Data System Modernization with 

CSC Corporation 

Internet Sites: http://www.gcn.com/vol20 no6/news/3836-1.html and 

http://www.csc.com/newsandevents/news/720.shtml

Concept: Transforming a military installation to city-owned property with 

military, public, non-profit, and commercial tenants occupying and leasing 

facilities. 

Description: City Base is transforming a former military installation to 

city-owned property with military, public, non-profit, and commercial 

tenants occupying and leasing facilities. The service conveys the 

installation to the city and then leases back the facilities needed for 

mission operations. The city may contract with a third party to manage 

and develop the property. 

Where Used Previously: Brooks Air Force Base and the City of San 

Antonio, Texas. The Air Force created the Brooks City-Base Partnership 

with the city of San Antonio as a means to reduce Air Force base operating 

and personnel cost and to promote public-public and public-private 

partnerships. Special authorizing legislation in 1999 and 2000 allowed such 

partnership in which the Air Force transferred real property to San 

Antonio in July 2002 in exchange for a leaseback of facilities and for the 

city to provide municipal services such as fire protection and law 

Negotiation with Private 

Sector (i.e., transfer 

workforce to the private 

sector as part of a contract 

negotiation) 

City-Base Partnership 
Appendix I: Alternatives to A-76 for Sourcing 

Non-Core Competencies 

Page 35 GAO-03-818 Defense Management 

enforcement. Also, the Army has implemented a similar type of 

partnership with the city of Monterey, California. 

Internet Site: http://www.ci.sat.tx.us/edd/brooks/citybasedef.htm 

Concept: Similar to negotiating with the private sector, this establishes a 

government-industry partnership and leverages the expertise of the 

commercial marketplace. 

Description: Strategic partnering moves a function and employees away 

from the government. The function is not given to a private corporation 

but is “taken over” by the employees. However, the employees do not form 

a stand-alone corporation, but instead, a partnership with the private 

company. It is used when an organization has many of the necessary 

elements for operating as a private company, but does not have the 

complete framework necessary to operate as a stand-alone corporation 

(payroll, benefits programs, taxes, marketing, and business development). 

A strategic partnership allows the employees to partner with an entity that 

already has these systems and procedures in place. Such partnering 

arrangements could be made with a private firm, joint venture, or a 

non-profit organization. 

Where Used Previously: National Security Agency (NSA)—CSC-led 

group with Logicon (Northrup Grumman) and dozens of “Alliance” 

contractors 

Internet Site: http://www.reedsmith.com/db30/cgi-bin/pubs/a76costs.pdf

Concept: Publicly owned, common stock corporation, chartered by 

Congress and provided a marketplace niche in which to accomplish some 

public good. They can be monopolies (e.g., the U.S. Postal Service) or 

competitors (e.g., Fannie Mae and Freddie Mac). 

Description: Quasi-government corporations are an alternative similar to 

the non-profit corporation. The principal difference is that it is established 

by a government agency in order to serve a governmental purpose, rather 

than being established by private individual firms. The employees are not 

federal civil servants and do not participate in the federal retirement or 

other federal employee benefit systems. The advantages are that they can 

operate more flexibly than a government agency and they are not required 

Strategic Partnering 

Quasi-Government 

Corporations 
Appendix I: Alternatives to A-76 for Sourcing 

Non-Core Competencies 

Page 36 GAO-03-818 Defense Management 

to comply with all of the federal personnel rules and acquisition 

regulations. 

Where Used Previously: Fannie Mae, Freddie Mac 

Internet Sites: http://www.reedsmith.com/db30/cgi-bin/ 

pubs/a76costs.pdf and http://www.auditor.leg.state.mn.us/fyi19a7.htm
Appendix II: Army’s Plans for Transforming 

Its In-House Industrial Facilities 

Page 37 GAO-03-818 Defense Management 

In 2002, the Army’s “Third Wave” initiative received much public attention 

because of what Army officials have characterized as an unrelated, but 

parallel effort underway whereby RAND, under contract to the Army, 

was studying alternatives for rightsizing the Army’s government-owned 

ammunition manufacturing facilities and two arsenals that manufacture 

ordnance materiel—facilities that overall had been recognized as having 

declining workloads, excess capacity, and high operating costs. 

Although RAND had studied various options, such as privatization 

and creation of a federal government corporation, the Army decided 

in March 2003 not to pursue the options outlined in what was then a 

draft RAND report. Instead, in a March 24, 2003 memorandum to the 

Commanding General, U.S. Army Materiel Command (AMC), the Secretary 

of the Army directed the following actions to transform the Army owned 

portion of its defense industrial base to include ammunition facilities, 

manufacturing arsenals, and also its maintenance depots: 

• AMC was directed to develop a written concept for 

consolidation, divestiture, or leasing, as appropriate, of the 

government-owned/government-operated and governmentowned/contractor-operated ammunition facilities. 

• AMC was directed to continue to work towards reducing governmentowned and operated manufacturing arsenal plant capacity and develop 

internal efficiency measures for facilities responsible for ground-based 

systems. 

• AMC was directed to use existing legal authority to form and maintain 

partnerships between government-owned and operated maintenance 

depots and the private sector, and implement initiatives to improve 

efficiencies, optimize utilization, and upgrade the core capabilities 

required to meet current and future requirements. 

Appendix II: Army’s Plans for Transforming 

Its In-House Industrial Facilities 
Appendix III: Senior Executive Council 

Definitions of Core Competency 

Page 38 GAO-03-818 Defense Management 

In attempting to define core competency in a defense environment, the 

Senior Executive Council defined core as “A complex harmonization of 

individual technologies and ‘production’ (employment, delivery) skills that 

create unique military capabilities valued by the force employing CINC!” 

The Council provided the following additional definitions to help in the 

understanding of core: 

• Proficiency in the coordination of human activity and employment of 

technology and technical systems to conduct military operations called 

for by a CINC. 

• A complex integration of human knowledge and skills with the 

technologies of warfare to accomplish a military objective of value to a 

commander. 

• It’s what we do better than anyone else to produce specific effects desired 

by a CINC. 

• The essence of what we provide in world-class warfighting and related 

unique capabilities—through a synergistic combination of knowledge, 

technologies, and people—to produce desired effects for CINCs. 

• The deep commitment of people, using technologies and delivering 

capabilities to meet a desired effect in support of national objectives. 

• A synergistic employment of individual and organizational knowledge, 

technologies, and capabilities producing world-class services (military 

operations) to deliver a desired effect to a CINC. 

Appendix III: Senior Executive Council 

Definitions of Core Competency 
Appendix IV: Pioneer Projects 

Page 39 GAO-03-818 Defense Management 

In support of the Senior Executive and Business Initiative Councils’ 

direction to identify alternative approaches to A-76 for selected non-core 

competencies, the services and Defense agencies identified 10 pilot 

“pioneer” projects. All 10 were approved by the Business Initiative 

Council and presented to the Office of Management and Budget. Eight 

of the projects were approved by OMB to be counted toward DOD’s FAIR 

Act inventory goal. OMB endorsed the pioneer projects whose techniques 

were waivers to A-76, new requirements, direct service contract, and 

divestiture, but disapproved the projects that proposed reengineering as 

their technique. Subsequently, DOD withdrew 2 projects, leaving 6 pilot 

projects for implementation. A brief description of those projects and their 

current status is provided below. 

Description: Optical fabrication involves eyewear component production 

and assembly and is performed at about 37 locations within and outside of 

the United States, employing personnel in the Departments of the Navy 

and Army. The Department of the Navy has the lead responsibility for this 

pioneer project and is now starting its analysis of this divestiture proposal. 

It anticipates that the analysis will take approximately 6 to 18 months to 

complete. A final decision regarding the optical fabrication divestiture will 

be made after the completion of the analysis. 

Alternative: Divestiture 

Positions Affected: Approximately 69 civilians and 300 military 

Status: Conceptual Stage 

Description: The Brooks City-Base Partnership involves a partnership 

between the Air Force and the city of San Antonio for which the Congress 

passed special authorizing legislation in 1999 and 2000. This divestiture 

was a way to reduce Air Force base operating and personnel cost and 

build public-public and public-private partnerships. As part of this effort, 

the Air Force transferred Brooks Air Force Base’s real property to San 

Antonio in July 2002 in exchange for a leaseback of facilities and for the 

city to provide municipal services such as fire protection, law 

enforcement, custodial and landscaping. Also, as part of this partnering 

arrangement, the city of San Antonio will provide the Air Force a share of 

the revenues generated from the contracts and developments resulting 

from the land and facilities transferred. 

Appendix IV: Pioneer Projects 

Department of the Navy: 

Ophthalmic Services 

Department of the Air 

Force: Brooks City-Base 
Appendix IV: Pioneer Projects 

Page 40 GAO-03-818 Defense Management 

Alternative: Divestiture 

Positions Affected: Approximately 100 civilian and 40 military 

Status: Ongoing. 

Description: According to its current arrangement with the city of 

Monterey, California, the Department of the Army proposed the Municipal 

Services Partnership for Base Support as its pioneer project. The Army is 

seeking legislative authority for all components within the department to 

be able to contract directly with local governments for municipal services 

such as public works and utility. 

Alternative: Direct Service Contract 

Positions Affected: Approximately 500 civilian employees (depending 

upon the number of installations selected for this type of contract). 

Status: Enabling legislation has been submitted to Congress for 

consideration as part of the fiscal year 2004 authorization process. 

The Army is conducting business case analyses for additional installation 

selection in the event the legislation is approved. However, as of May 2003, 

this proposal was not included in either the House or Senate approved 

versions of the bill. 

Description: The Defense Logistics Agency (DLA) is proposing that 

the repair and rebuilding of depot-level industrial plant equipment by 

in-house personnel at the Defense Supply Center Richmond’s facility in 

Mechanicsburg, Pennsylvania, be subject to direct conversion through 

an A-76 waiver in accordance with the Office of Management and 

Budget Circular A-76’s Revised Supplement Handbook, part I, chapter I, 

section E. 

Alternative: Waiver to A-76 Full Cost Comparison Study 

Positions Affected: Approximately 82 civilians 

Department of the Army: 

Municipal Services 

Partnership for Base 

Support 

Defense Logistics Agency: 

Metalworking Machinery 

Repair/Rebuild Services 
Appendix IV: Pioneer Projects 

Page 41 GAO-03-818 Defense Management 

Status: DOD assessed the applicability of OMB Circular A-76 to this 

function and determined that the Mechanicsburg facility is a depot level 

maintenance and repair operation and is therefore exempt from OMB 

Circular A-76. 

Description: The Defense Contract Management Agency plans to use a 

streamlined A-76 approach to compete information technology functions 

such as desk side support, district offices’ information technology 

operations, and automated application testing. The streamlined A-76 

approach will allow the Defense Contract Management Agency to directly 

compare its costs for these types of functions with those of contractors on 

the General Services Administration’s schedules. Also, it will shorten the 

time for completing the A-76 process. 

Alternative: Streamlined A-76 

Positions Affected: 450 positions reviewed, approximately 250 positions 

affected 

Status: Streamlined A-76 effort is scheduled to start January 2004 with 

anticipated implementation of the most efficient organization and/or 

contracts by fiscal year 2005. 

Description: The Defense Finance and Accounting Service (DFAS) is 

proposing to acquire computer management services from a commercial 

source. As part of this effort, DFAS plans to use a performance-based 

service contract to obtain desktop hardware, software, and support 

services. 

Alternative: New Requirement 

Positions Affected: Approximately 125 civilians 

Status: DFAS notified Congress of this proposal and its plans to assess 

desktop management services. DFAS has completed its desktop 

management business case assessment and its announcement regarding 

that decision is imminent. 

Defense Contract 

Management Agency: 

Reengineer Existing 

Information Technology 

Structure 

Defense Finance and 

Accounting Service: 

Desktop Management 

Services 
Appendix V: Comments from the Department 

of Defense 

Page 42 GAO-03-818 Defense Management 

Appendix V: Comments from the Department 

of Defense 
Appendix V: Comments from the Department 

of Defense 

Page 43 GAO-03-818 Defense Management 
Appendix VI: GAO Contact and Staff 

Acknowledgments 

Page 44 GAO-03-818 Defense Management 

Marilyn K. Wasleski (202) 512-8436 

In addition to the names above, Debra McKinney, Nancy Lively, R.K. Wild, 

Daniel Kostecka, and Kenneth Patton also made significant contributions 

to this report. 

Appendix VI: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 
Related GAO Products 

Page 45 GAO-03-818 Defense Management 

Sourcing and Acquisition: Challenges Facing the Department of Defense. 

GAO-03-574T. Washington, D.C.: March 19, 2003. 

Proposed Revisions to OMB Circular A-76. GAO-03-391R. 

Washington, D.C.: January 16, 2003. 

Defense Management: New Management Reform Program Still Evolving. 

GAO-03-58. Washington, D.C.: December 12, 2002. 

Commercial Activities Panel: Improving the Sourcing Decisions of the 

Federal Government. GAO-02-847T. Washington, D.C.: September 27, 2002. 

Commercial Activities Panel: Improving the Sourcing Decisions of the 

Federal Government. GAO-02-866T. Washington, D.C.: June 26, 2002. 

Competitive Sourcing: Challenges in Expanding A-76 Governmentwide. 

GAO-02-498T. Washington, D.C.: March 6, 2002. 

DOD Competitive Sourcing: A-76 Program Has Been Augmented 

by Broader Reinvention Options. GAO-01-907T. Washington, D.C.: 

June 28, 2001. 

DOD Competitive Sourcing: Effects of A-76 Studies on Federal 

Employees’ Employment, Pay, and Benefits Vary. GAO-01-388. 

Washington, D.C.: March 16, 2001. 

DOD Competitive Sourcing: Results of A-76 Studies Over the Past 

5 Years. GAO-01-20. Washington, D.C.: December 7, 2000. 

DOD Competitive Sourcing: More Consistency Needed in 

Identifying Commercial Activities. GAO/NSIAD-00-198. 

Washington, D.C.: August 11, 2000. 

DOD Competitive Sourcing: Savings Are Occurring, but Actions Are 

Needed to Improve Accuracy of Savings Estimates. GAO/NSIAD-00-107. 

Washington, D.C.: August 8, 2000. 

DOD Competitive Sourcing: Some Progress, but Continuing 

Challenges Remain in Meeting Program Goals. GAO/NSIAD-00-106. 

Washington, D.C.: August 8, 2000. 

Competitive Contracting: The Understandability of FAIR Act Inventories 

Was Limited. GAO/GGD-00-68. Washington, D.C.: April 14, 2000. 

Related GAO Products 
Related GAO Products 

Page 46 GAO-03-818 Defense Management 

DOD Competitive Sourcing: Potential Impact on Emergency 

Response Operations at Chemical Storage Facilities Is Minimal. 

GAO/NSIAD-00-88. Washington, D.C.: March 28, 2000. 

DOD Competitive Sourcing: Plan Needed to Mitigate Risks in Army 

Logistics Modernization Program. GAO/NSIAD-00-19. Washington, D.C.: 

October 4, 1999. 

DOD Competitive Sourcing: Air Force Reserve Command 

A-76 Competitions. GAO/NSIAD-99-235R. Washington, D.C.: 

September 13, 1999. 

DOD Competitive Sourcing: Lessons Learned System Could Enhance 

A-76 Study Process. GAO/NSIAD-99-152. Washington, D.C.: July 21, 1999. 

Defense Reform Initiative: Organization, Status, and Challenges. 

GAO/NSIAD-99-87. Washington, D.C.: April 21, 1999. 

Quadrennial Defense Review: Status of Efforts to Implement Personnel 

Reductions in the Army Materiel Command. GAO/NSIAD-99-123. 

Washington, D.C.: March 31, 1999. 

Defense Reform Initiative: Progress, Opportunities, and Challenges. 

GAO/T-NSIAD-99-95. Washington, D.C.: March. 2, 1999. 

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 

Installation Wing Plan. GAO/NSIAD-99-73. Washington, D.C.: 

February 26, 1999. 

Future Years Defense Program: How Savings From Reform Initiatives 

Affect DOD’s 1999-2003 Program. GAO/NSIAD-99-66. Washington, D.C.: 

February 25, 1999. 

DOD Competitive Sourcing: Results of Recent Competitions. 

GAO/NSIAD-99-44. Washington, D.C.: February 23, 1999. 

DOD Competitive Sourcing: Questions About Goals, Pace, and Risks 

of Key Reform Initiative. GAO/NSIAD-99-46. Washington, D.C.: 

February 22, 1999. 

OMB Circular A-76: Oversight and Implementation Issues. 

GAO/T-GGD-98-146. Washington, D.C.: June 4, 1998. 
Related GAO Products 

Page 47 GAO-03-818 Defense Management 

Quadrennial Defense Review: Some Personnel Cuts and Associated 

Savings May Not Be Achieved. GAO/NSIAD-98-100. Washington, D.C.: 

April 30, 1998. 

Competitive Contracting: Information Related to the Redrafts of the 

Freedom From Government Competition Act. GAO/GGD/NSIAD-98-167R. 

Washington, D.C.: April 27, 1998. 

Defense Outsourcing: Impact on Navy Sea-Shore Rotations. 

GAO/NSIAD-98-107. Washington, D.C.: April 21, 1998. 

Defense Infrastructure: Challenges Facing DOD in Implementing 

Defense Reform Initiatives. GAO/T-NSIAD-98-115. Washington, D.C.: 

March 18, 1998. 

Defense Management: Challenges Facing DOD in Implementing 

Defense Reform Initiatives. GAO/T-NSIAD/AIMD-98-122. 

Washington, D.C.: March 13, 1998. 

Base Operations: DOD’s Use of Single Contracts for Multiple Support 

Services. GAO/NSIAD-98-82. Washington, D.C.: February 27, 1998. 

Defense Outsourcing: Better Data Needed to Support Overhead Rates for 

A-76 Studies. GAO/NSIAD-98-62. Washington, D.C.: February 27, 1998. 

Outsourcing DOD Logistics: Savings Achievable But Defense Science 

Board’s Projections Are Overstated. GAO/NSIAD-98-48. Washington, D.C.: 

December 8, 1997. 

Financial Management: Outsourcing of Finance and Accounting 

Functions. GAO/AIMD/NSIAD-98-43. Washington, D.C.: October 17, 1997. 

Base Operations: Contracting for Firefighters and Security Guards. 

GAO/NSIAD-97-200BR. Washington, D.C.: September 12, 1997. 

Terms Related to Privatization Activities and Processes. 

GAO/GGD-97-121. Washington, D.C.: July 1, 1997. 
Related GAO Products 

Page 48 GAO-03-818 Defense Management 

Defense Outsourcing: Challenges Facing DOD as It Attempts to Save 

Billions in Infrastructure Costs. GAO/T-NSIAD-97-110. Washington, D.C.: 

March 12, 1997. 

Base Operations: Challenges Confronting DOD as It Renews Emphasis 

on Outsourcing. GAO/NSIAD-97-86. Washington, D.C.: March 11, 1997. 

(350292) 
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